Archives for October 1, 2012

How the NY AG built his RMBS case against JP Morgan for Bear Stearns Sins

This story has been updated

One documentary film maker, one investigative journalist, and one law firm willing to take a risk led to the lawsuit the New York Attorney General just filed against JP Morgan for a system wide effort to defraud mortgage investors by Bear Stearns.

My readers and viewers of RT’s The Keiser Report know they first learned about Bear Stearns fraud back in 2010 after I was the first journalist to report for The Atlantic Bear Stearns whistleblowers were on the record saying they were directed to make up loan level detail for the mortgage bond raters. From there I broke news again at The Atlantic in January 2011 detailing how Bear’s own internal documents showed the RMBS traders, under Tom Marano, were literally stealing billions from the clients they’d sold the mortgage bonds to via a double dipping scheme.

The documents to outline the double dipping by Bear traders was discovered by PBWT attorney Eric Haas – who also has an accounting background. It was this evidence that enabled him to add a fraud claim, that survived a motion to dismiss, to Ambac’s suit and year and a half later JP Morgan had to admit in their regulatory filings for shareholders that they were now looking at $120 billion in possible RMBS fraud and putback suits. These additional suits filed by the FHFA for the GSE’s and tons of other mortgage investors would have never happen if PBWT hadn’t been first to do the gritty research and detail to build their claims against $JPM/$BS/$EMC.

While this is likely the most impactful reporting of my career it couldn’t have happen with out one documentary film maker, Nick Verbitsky of BlueChip Films. He was first to find former EMC/Bear analyst to go on camera and detail the methods of deceit and fraud by the billions. It was Verbitsky’s unedited interviews that led to my first The Atlantic story. And it was that story to helped open up research for attorneys at Paterson Belknap for their client Amabc.

I remember getting a call notifying me the NY AG’s office had read my reporting and wanted to reach filmmaker Nick Verbitsky to get these unedited whistleblower tapes last year. And then we watched AG Schneiderman slowly start to interview the Bear Stearns whistleblowers which I reported multiple times on RT’s The Keiser Report. A program that was bold enough to trust my reporter instincts, go up against one of the world’s most powerful banks, JP Morgan, and know it was a good idea to warn viewers the bank is going to get their asses sued and it could affect the financial health of the company.

The NY AG also got a push from New York State Assemblyman Morelle who asked him to investigated Bear/JP Morgan for insurance fraud using New York State insurance laws. I first reported the NY AG was beginning his investigation in April 2011 for DealFlow Media’s The distressed Debt Report. Today we see copy cat New York Times reporter Gretchen Morgenson source that people familiar with the AG’s investigation told her he began in the Spring of 2011. In reality Gretchen read my original reporting and the The Atlantic’s mention of it back in April 2011 and I find it absurd that she can’t properly credit where she learned about it first. I have to wonder if Assemblyman Morelle, who chairs the insurance committee, is satisfied with the NY AG only bringing civil fraud charges against JP Morgan – if he’s not will he push the DOJ’s Southern District of New York office to carry the ball over the line and actually charge individual bank traders with criminal wrong doing? You can see a slew of likely illegal actions the Bear traders did that the NY AG left out of his suit in a story I wrote for DealFlow Media last August.

Today’s one of those days when it feels good to be an independent financial journalist and I want to thank my editors at DealFlow Media and The Atlantic along with Max Keiser and his producer Stacy Hebert at RT for publishing all my original reporting on this crime. To my fellow journalist just catching up on the story don’t forget to credit those who were the catalyst for action.

What’s next – I think PBWT and other Big Law firms, who have copied their suit and sued $JPM, are going start taking some serious settlement offers from $JPM and I expect it to be in the billions. I mean look at all additional whistleblowers that came forward from other firms Bear Stearns hired to help them sell mortgage bonds.

As far as JP Morgan shareholders go, if the bank’s payout to settle rmbs fraud and putback claims is in the double-digit billions then I’d expect lawyers to start filing class actions suits against JP Morgan for not disclosing enough rmbs putback risk. This is an issue I wrote about in May. There is also the fact that the SEC went to $JPM back in 2010 and told them they are not holding enough capital for putbacks – I reported this on Max Keiser’s show in November 2010. So why did the SEC allow this big bad bank to under-reserve for the last two years and report higher earnings? That’s a question we’d all like answered but are not likely to get.

Editors Note: Verbitsky’s doc film about Bear Stearns, Confidence Game, is showing at the Bruce Museum on Thursday night in Greenwich,CT. I am a panel guest, along with Roddy Boyd and William Cohan who will be speaking with Veribitsky after the movie. Come see it and hear first hand how we uncovered this fraud and how regulators came to us help build their case.

New Canaan Hedgie Greg Imbruce Sued for Investor Fraud

New Canaan, Conn. hedge fund manager Greg Imbruce has been sued for investor fraud by a group that includes a former Bridgewater Associates partner and New Canaan millionaire William Mahoney. I reported the sordid details of Imbruce’s alleged scheme at Growth Capitalist today.

The suit, filed in Stamford Superior Court, became public in July after Imbruce reneged on an earlier private settlement with his investors. But this isn’t the first time Imbruce has been in trouble for his work. In January 2011 FINRA fined him for violating Rule 105 of Regulation M while he worked at Bernard L. Madoff Securities. Rule 105 prohibits the sale of securities during the restricted period and then the purchase of the same securities in the secondary public offering – FINRA says Imbruce did this illegal move in shares of $ATPG in November 2007 that netted Madoff Securities a profit it should not have earned.

Imbruce, who grew up in Westport, Conn. and graduated from Lehigh College in 1993 is an active member of the Stamford Yacht Club. His sailing awards have earned him accolades from Connecticut Governor Malloy but unbeknownst to his tony friends at the yacht club he’s been accused of running a complicated financial scheme to front run his own investors and deceive board members of an oil exploration company that was gearing up to go public.

Imbruce came across my radar this December when I saw a letter of interest his fund, ASYM Energy Partners, had sent bankrupt New Stream Capital–a fund I’d reported was being investigated by the SEC and the FBI for asset valuation fraud and more. Imbruce was interested in buying some oil and gas leases New Stream had overvalued on their books. According to one of Imbruce’s top employees he was going to give a kickback to New Stream to buy the assets for less cash than the inflated asking price of $70 million but New Stream would still book the deal at the inflated price. The transaction never went through and I found no evidence Imbruce had ever paid the kickback. Still he went on my list as a possible hedgie fraudster. I finally spoke with Imbruce in April when I called his Stamford office to see he if wanted to comment on a letter I’d been leaked, which accused him of all kinds of bad things and demanded his resignation from the board of Starboard Resources. His only comment was, “You can’t print that it’s private.” I had to explain actually as a journalist I can and will. After that he’s refused to return calls and emails for comment but people invested in his hedge fund or staff that have worked for him kept me apprised of his questionable actions.

If you are looking for a road map of how one man’s ego brazenly led him to screw over his own investors go read the story at finance trade publication Growth Capitalist Investor. What’s interesting here is Imbruce isn’t suffering financially yet for his alleged fraud because as investors can sue him for unjust enrichment, and kick him out of fund management, he still gets to keep the ‘carried interest’ in his fund and cash out if one of the funds’ assets goes public or gets sold for a profit. Jonathon Whitcomb, the Stamford securities attorney hired by investors, is trying to make sure that doesn’t happen but he’s got to do some fancy legal maneuvering if he’s going catch Greg Imbruce.

So far Imbruce has been able to skate clear of the Securities and Exchange Commission because the amount of money he managed at his hedge fund, ASYM, was below the watchdog’s threshold. Imbruce is the kind of operator who apparently is a master at cheating the
market/investors, suffers only a menial slap on the wrist, and then moves onto his next financial endeavor. I understand he is now trying to raise money for an oil well plugging and abandonment company.

The Connecticut Department of Banking could take a look at him for violations though because he never filed as an exempt investment advisor in the State. If investors can use some of the new Dodd-Frank financial regulations they’ll have a chance of forcing Imbruce to give up his carried interest, return it to the funds limited partners, and halt more money coming his way. You see according to investors he always told them he had his own money invested in the fund. Yet they later learned the ‘skin in the game’ Imbruce touted to entice more investments was non-existent.

Another problem Imbruce could face is a questionable transfer of assets at the beginning of the year. New Canaan town records show after Imbruce learned frustrated investors could try to attach his personal assets he moved his new $2.2 million home at 92 Turtleback Road into his wife’s name, Alana Imbruce, for only one dollar. The transfer was registered on February 9th 2012. An attorney familiar with the suit against Imbruce said a court could consider this fraudulent conveyance of assets and his wife could also be named as a defendant.

Of course Imbruce investors like New Canaan’s William Mahoney, Brad Higgins, and an Irish family fund, SOSventures, could have done a FINRA broker check before they forked over millions to this hedgie with a troubled past. Hopefully he doesn’t use his boat, Joyride, to sail away before the court awards them some restitution.

Editors Note: For you investors who follow tech companies and think the name Imbruce sounds familiar – Greg’s brother is Doug Imbruce a Silicon Valley star and the founder of Qwiki. A company TechCrunch Disrupt first highlighted at an investor event in 2010.

UPDATE: William P. Mahoney died in his New Canaan home on April 30th from cancer at the age of 55. He was a great friend to many in the investment world and a wonderful family man. He will always be remembered for his generous spirit and love of life.

Starboard Resources Board Letter to Imbruce 04-23-2012